Market Segmentation

This lesson covers AQA A-Level Business topic 3.3.3, focusing on market segmentation. You will study the different bases for segmentation — demographic, geographic, income, and behavioural — and evaluate the benefits and limitations of segmentation for businesses.

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What Is Market Segmentation?

Key Definition: Market segmentation is the process of dividing a broad market into distinct subgroups (segments) of consumers who share similar characteristics, needs, or behaviours, so that a business can target each segment with a tailored marketing mix.

Rather than treating all consumers as identical, segmentation recognises that different groups of customers have different needs, preferences, and purchasing behaviours. By identifying and targeting specific segments, businesses can create products, pricing, promotions, and distribution channels that better match what each group wants.

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Bases for Segmentation

1. Demographic Segmentation

Key Definition: Demographic segmentation divides the market based on measurable population characteristics such as age, gender, family size, ethnicity, religion, or life stage.

Demographic Variable	Examples of Segmentation
Age	Children's toys, teen fashion, adult financial products, pensioner holidays
Gender	Men's grooming products, women's sportswear, gender-neutral clothing
Family size/life stage	Family cars, baby products, retirement planning services
Ethnicity/religion	Halal food ranges, Diwali greeting cards, Afro-Caribbean hair products

Real-World Example: The UK holiday market is heavily segmented by demographics. Center Parcs targets families with young children (short breaks in the countryside with child-friendly activities). Saga targets the over-50s market with tailored cruises and insurance. Club 18-30 (now rebranded as Cook Islands) historically targeted young adults seeking party holidays. Each brand offers a fundamentally different product designed for a specific demographic segment.

2. Geographic Segmentation

Key Definition: Geographic segmentation divides the market based on location — country, region, city, neighbourhood, or climate.

Geographic Variable	Examples
Country	McDonald's serves McSpicy Paneer in India; Pret A Manger adjusts menus for the US market
Region	Henderson's Relish is marketed primarily in South Yorkshire; Greggs has historically been stronger in northern England
Urban vs rural	Deliveroo focuses on urban areas with high population density
Climate	Weatherproofing products sell more in wet climates; sunscreen demand varies by region

Real-World Example: Greggs uses geographic segmentation to tailor its store locations and marketing. The firm has traditionally been dominant in northern England and Scotland, where it benefits from strong brand recognition and a cultural affinity for bakery products. As it expanded south, Greggs adapted its strategy — opening concessions in motorway service stations and partnering with Just Eat for delivery, recognising that southern consumers were less familiar with the brand and more likely to discover it through new channels.

3. Income Segmentation

Key Definition: Income segmentation divides the market based on consumers' income levels, using classifications such as socio-economic groups or disposable income bands.

The UK traditionally uses socio-economic groups based on occupation:

Group	Classification	Occupation Examples	Approximate % of UK Population
A	Upper middle class	Senior managers, surgeons, barristers	4%
B	Middle class	Teachers, managers, accountants	23%
C1	Lower middle class	Supervisors, clerical workers, nurses	28%
C2	Skilled working class	Electricians, plumbers, mechanics	20%
D	Working class	Semi-skilled and unskilled manual workers	15%
E	Subsistence	Unemployed, pensioners, casual workers	10%

Business Application: Premium brands (Waitrose, John Lewis) target groups A, B, and C1. Value brands (Aldi, Lidl, Primark) target C2, D, and E. Mid-market brands (Tesco, M&S) attempt to appeal across multiple income segments with tiered product ranges (e.g., Tesco Finest, Tesco own-brand, Tesco Value).